Proceedings of the Australasian Conference on Business and Social Sciences 2015, Sydney (in partnership with The Journal of Developing Areas) ISBN 978-0-9925622-1-2 1197 USE OF MULTI-CRITERIA DECISION ANALYSIS FOR LOCATION DECISION: DEVELOPING A RISK REACTION SPECTRUM Khan Muhammad Saqiful Alam North South University, Bangladesh Md. Faisal Ibne Wali North South University, Bangladesh Shahid Hossain North South University, Bangladesh Muhammad Maruf Ibne Wali North South University, Bangladesh ABSTRACT The location of any business facility plays a pivotal role in the success of the business and it is one of the major considerations in subjects such as business strategy, operations management and economics. This paper proposes the use of Multi-criteria Decision Analysis, as an effective means of tackling the crucial location decision for a manufacturing plant. An exploratory case of a strawberry syrup manufacturer is investigated and a ranking of three speculative locations where the company can establish their new strawberry syrup production plant is presented here. To evaluate the effectiveness of MCDA in determining the optimum set of locations for the plant, extensive sensitivity analyses were carried out with all the criteria involved, and this further supported the findings of the three most possible locations. Finally, the paper proposes the development of a risk continuum based on extreme risk preferences, which can be used as a tool to determine the ranking of the alternatives based on the risk preference and attitude. The paper showed the potential of the MCDA as an effective tool in location decisions, presents a tool to incorporate diversity in decision maker preferences, and then sets the stage for further research in this specific branch. JEL Classifications: C3, M2, D7 and D8 Keywords: Location Decisions, Decision Making, Multi-criteria Decision Analysis, MCDA, Evidential Reasoning. Corresponding Author’s Email Address: saqiful@gmail.com INTRODUCTION The determination of the location of a production/manufacturing plant plays a very important role, both for business studies (Brush et al., 1999) and for economics (Blair and Premus, 1987). Proper location of a manufacturing plant determines how long the raw materials and the produced good need to travel, how skilled the workforce are, how efficient the operations of the factory is, etc. (Brush et al., 1999). An appropriate location is determined by various tools present, both qualitative and quantitative. All these tools base themselves on few critical factors, which are qualitative and quantitative in nature (Townroe, 1972). Notable among the tools based entirely on quantitative factors are Distance Models, Transportation Networks, Hierarchy Models and Flow Models (Beckman, 1968). These models are concerned with the distances - from the market and from the source of the raw materials, costs of transportation and other measurable factors. But based on experience, accounting for only the quantitative is not enough (Townroe, 1972). The decision maker needs to factor in the importance of the qualitative factors as well, most importantly his own preference and intuition as well as political stability, local advantage etc. Furthermore, the fact that there exists a correlation between different alternatives when a decision maker undertakes a decision needs to be factored into the analysis, which has been ignored by the popular Prospect theory (Nwogugu, 2005). This study points out the need to consider decision making and risk assessment as multi criteria processes, and develop on the existing rigidity of the prospect theory. Unfortunately all these tools focus on the variability of one or two factors at a time, keeping everything else constant, wherein their drawbacks lie (Sorenson and Baum, 2003). The final decision depends of the manager’s knowledge of the factors, tools and tradeoffs. This paper presents a means of giving managers a more holistic picture of the alternatives at hand based on the important available criteria and also the individual risk preferences, aiding them in taking more balanced decisions. The paper starts with the discussion of the existing